Saudi Ceramics expects sales to grow on the back of the kingdom's housing construction boom, Al Rajhi Bank said yesterday.
In March, King Abdullah announced a government programme to build 500,000 low-cost housing units that would cost the country 250 billion Saudi riyals.
"The ceramics market in the kingdom is still growing," said Moath Al Shaikh, an analyst at Al Rahji Capital, a subsidiary of the investment bank, which is based in Riyadh.
"This has attracted GCC ceramic producers such as the UAE's Ras Al Khaimah Ceramics to enter the market. This should intensify the competition in the Saudi market; however, we believe Saudi Ceramics is well positioned to capture more market share and continue growing."
Mr Al Shaikh has an "overweight" rating on the stock and increased the target price by 18.8 per cent to 161.6 riyals. Saudi Ceramic Company is one of the oldest ceramics producers in the Middle East with a market value of about 3.4bn riyals. The company manufactures and markets ceramic products such as ceramic tiles, sanitaryware and water heaters. The company intends to launch production of red bricks by next year.
The company enjoys cost advantages over its GCC peers. Its backward integration model coupled with subsidised gas prices result in relatively low production costs and high efficiency. In addition, transportation and tax costs will be another burden on GCC companies.
Saudi Ceramics announced its second-quarter results with strong top and bottom lines growth. Driven by strong tile sales, revenues grew 15 per cent to 320.6 million riyals compared with the same period last year, beating Mr Al Shaikh's estimate by almost 14 per cent. Net profit for the quarter rose 13 per cent to 65m riyals.
Going into the third quarter, when Ramadan is expected to take place, Mr Al Shaikh believes earnings will be less interesting compared with the first half of the year due to the seasonal nature of the business. "We estimate third-quarter revenues to decline by 10.9 per cent quarter on quarter but to grow by 12.1 per cent year-on-year," he added.